Stock Repurchases and Treasury Share Sales: Do They Stabilize Price and Enhance Liquidity?
64 Pages Posted: 18 Aug 2008 Last revised: 18 Nov 2017
Date Written: September 1, 2011
Can companies reduce the volatility and increase the liquidity of their stocks by trading them? In the context of the Italian stock market, where companies have far more leeway to sell as well as buy their own stocks than in the U.S., the answer is yes. We examine the effects of trading (open market share repurchases and treasury shares sales) on liquidity (bid-ask spread) and volatility (return variance). Further, we examine the impact of shareholder approvals of repurchase programs on liquidity and volatility. We find clear evidence that trading increases liquidity and reduces volatility. These results are consistent with our analysis of the motives Italian companies give for making share repurchases.
Keywords: Repurchase, liquidity, price stabilization, bid-ask spread, variance
JEL Classification: G12, G35
Suggested Citation: Suggested Citation